The top small-cap picks from UBS if the market rally continues to widen out
Despite a turbulent commencement in 2024, small-cap enterprises hold promising potential for investors, suggests UBS , in light of a broader market upturn that is anticipated to boost the sector. As it stands, the Russell 2000 Index has noted a 2% increase, while the S&P 500 has gained 6.6%. However, this pattern has reversed over the past month, with the Russell 2000 soaring 6.7%, significantly overshadowing the 2.7% appreciation experienced by the S&P 500.
In 2024, all but two sectors, namely utilities and real estate, have reported positive figures. The likely reduction of borrowing costs by the Federal Reserve later this year may provide increased momentum to small-cap stocks. UBS Analyst Joseph Parkhill notes the prospect of falling interest rates to be a conducive environment for small to mid-cap stocks (SMID).
UBS professionals have curated a list of small- and mid-cap stocks with unique investment theses that they strongly recommend. They include Evolent Health Inc, Constellium SE, Fortune Brands Innovations Inc, Alight Inc, Duolingo Inc, Aramark, Bio Rad Laboratories Inc, Western Alliance Bancorp, and On Holding AG – all of which hold a buy rating from UBS.
Analyst Jay Sole expects Roger Federer-endorsed shoe manufacturer, On Holding, to become a spearhead in industry growth and earnings, predicting a 30% compound annual growth rate in earnings per share through to 2028. Moreover, Western Alliance Bancorporation, a Phoenix-based regional bank, is a small-cap stock that UBS holds in high regard. Despite a roughly 10% drop in shares year to date, they have appreciated by 5.6% this week alone.
Food service provider Aramark is seen by analyst Joshua Chan as a promising prospect, pointing to the possibility of the company’s growth and margin guidance broadening later in the year. On Monday’s closing figures, UBS has set a $35 price target on Aramark shares, indicating they may gain an additional 13%.
